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UUU - Uranium One Inc - Annual consolidated financial statements for the
year ended 31 December 2009
Uranium One Inc
(Incorporated in Canada)
(Registration number: 15096422420)
Share code on the JSE: UUU & ISIN: CA91701P1053
Share code on the TSX: UUU & ISIN: CA91701P1053
Annual consolidated financial statements for the year ended 31 December
2009
Management`s Responsibility for Financial Reporting
The consolidated financial statements have been prepared by management, in
accordance with Canadian generally accepted accounting principles, who,
when necessary, have made informed judgments and estimates of the outcome
of events and transactions. Management acknowledges its responsibility for
the fairness, integrity and objectivity of all information in the
consolidated financial statements.
As a means of fulfilling its responsibility, management relies on the
company`s system of internal control. This system has been established to
ensure, within reasonable limits, that the assets are safeguarded,
transactions are properly recorded and are executed in accordance with
management`s authorization and that the accounting records provide a solid
foundation from which to prepare the consolidated financial statements.
Any system of internal control has inherent limitations, therefore even
those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
The Board of Directors carries out its responsibility for the consolidated
financial statements principally through its Audit Committee, consisting
solely of non-management independent directors. This committee meets
periodically, reviews the scope of the external audit, the adequacy of the
system of internal control and the appropriateness of the financial
reporting and then makes its recommendations to the Board of Directors.
Based on those recommendations, the Board of Directors approves the
consolidated financial statements.
The consolidated financial statements have been audited by the Company`s
independent auditors, Deloitte & Touche LLP. The Auditors` Report to the
Shareholders of Uranium One Inc., outlines the scope of their examination
and opinion on the consolidated financial statements.
"Jean Nortier"
"Robin Merrifield"
Jean Nortier Robin Merrifield
President & Chief Executive Officer Executive Vice President & Chief
Financial Officer
March 9, 2010
Auditors` Report
To the Shareholders of Uranium One Inc.
We have audited the consolidated balance sheets of Uranium One Inc. (the
"Company") as at December 31, 2009 and 2008 and the consolidated statements
of operations, changes in equity, comprehensive (loss) income, accumulated
other comprehensive (loss) income and cash flows for the years then ended.
These financial statements are the responsibility of the Company`s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December
31, 2009 and 2008 and the results of its operations and its cash flows for
the years then ended in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants
March 9, 2010
Vancouver, B.C, Canada
Consolidated Balance sheets
As at December 31, 2009 and 2008
(in United States dollars)
Dec 31, Dec 31,
2009 2008
Notes $`000 $`000
ASSETS
Current assets
Cash and cash equivalents 4 148,465 176,225
Accounts and other receivables 5 42,405 39,926
Current portion of loans to joint 6.2 - 19,158
ventures
Inventories 7 71,634 17,390
Other assets 9 24,472 12,043
286,976 264,742
Non-current assets
Mineral interests, plant and 8 1,748,284 1,285,415
equipment
Loans to joint ventures 6.2 29,250 14,000
Other assets 9 33,137 62,976
Assets held for sale 3.3 51,460 -
1,862,131 1,362,391
Total assets 2,149,107 1,627,133
LIABILITIES
Current liabilities
Accounts payable and accrued 10 65,908 47,423
liabilities
Income taxes payable 14 1,633 12,639
Current portion of long term debt 11 63,579 -
Other liabilities 15 137,043 -
268,163 60,062
Non-current liabilities
Long term debt 11 - 61,275
Convertible debentures 12 140,862 118,042
Asset retirement obligations 13 16,100 12,999
Future income tax liabilities 14 180,687 375,293
Other liabilities 15 49,451 48,924
Assets held for sale 3.3 12,944 -
400,044 616,533
SHAREHOLDERS` EQUITY
Share capital 16 3,823,297 3,522,824
Contributed surplus 17 133,478 131,602
Equity component of convertible 46,480 46,480
debentures
Accumulated other comprehensive 16,392 (247,708)
income / (loss)
Deficit (2,538,747) (2,502,660)
1,480,900 950,538
Total shareholders` equity and 2,149,107 1,627,133
liabilities
Basis of presentation and principles of consolidation (note 2.1),
contingencies (note 26) & subsequent events (note 27)
The accompanying notes form an integral part of these Consolidated
Financial Statements
Approved on behalf of the board of directors
"Ian Telfer" "Andrew Adams"
Ian Telfer Andrew Adams
Chairman of the board Chairman of the audit committee
Consolidated Statements of Operations
For the years ended December 31, 2009 and 2008
(in United States dollars)
Year ended
Dec 31, Dec 31,
2009 2008
Not $`000 $`000
es
Revenues 151,992 149,776
Operating expenses (51,021) (30,490)
Depreciation and depletion (46,383) (22,566)
Earnings from mine operations 54,588 96,720
General and administrative (1) (37,903) (48,689)
Exploration expense (8,830) (14,881)
Impairment of mineral interests, 8.1 (265,456) (3,322,22
plant and equipment and closure 2)
costs
Care and maintenance (15,386) (1,868)
Operating loss (272,987) (3,290,94
0)
Interest and other 18 (9,145) (7,376)
Gain on available for sale 193 4,345
securities
Foreign exchange gain / (loss) 19 59,027 (11,709)
Other (630) 2,650
Loss from continuing operations before (223,542) (3,303,03
income taxes 0)
Current income tax expense 14 (20,915) (44,191)
Future income tax recovery 14 206,379 1,013,634
Loss from continuing operations (38,078) (2,333,58
7)
Profit / (loss) from discontinued 1,991 (122,260)
operations
Net loss (36,087) (2,455,84
7)
(1) Stock option and restricted 17 7,502 15,423
share expense (non-cash) included
in general and administrative
Loss per share from continuing
operations
Basic and diluted $(0.08) $(4.98)
Profit / (loss) per share from
discontinued operations
Basic and diluted $0.00 $(0.26)
Net loss per share
Basic and diluted $(0.08) $(5.24)
Weighted average number of shares
(in thousands)
Basic and diluted 21 475,583 468,424
The accompanying notes form an integral part of these Annual Consolidated
Financial Statements.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2009 and 2008
(in United States dollars)
Share capital Contributed
$`000 surplus Equity
$`000 component of
convertible
debentures
$`000
Balance as at 3,496,884 134,387 46,480
January 1, 2008
Net loss for the
year
Stock options and - 15,423 -
restricted shares
vested
Exercise of 15,791 (11,460) -
warrants
Exercise of stock 10,149 (6,748) -
options and
restricted shares
Unrealized loss - - -
recognized on
translation of
self-sustaining
foreign operations
Unrealized loss - - -
recognized on
translation of
self-sustaining
foreign
discontinued
operations
Realized loss on - - -
sale of Gold
One(1)
Fair value - - -
adjustments on
available for sale
securities, net of
tax
Balance as at 3,522,824 131,602 46,480
December 31, 2008
Net loss for the - - -
year
Stock options and - 7,502 -
restricted shares
vested
Exercise of stock 6,856 (5,626) -
options and
restricted shares
Issuance of 388
contingent shares
Unrealized gain - - -
recognized on
translation of
self-sustaining
foreign operations
Realized loss on - - -
sale of Gold
One(1)
Realized loss on - - -
sale of Uranium
One Africa (note
3.3)
Acquisition of 293,229 - -
Karatau (note 3.1)
Fair value - - -
adjustments on
available for sale
securities
Balance as at 3,823,297 133,478 46,480
December 31, 2009
Table continues:...
Accumulated Deficit Total
other $`000 $`000
comprehen-
sive income /
(loss)
$`000
Balance as at 51,967 (46,813) 3,682,905
January 1, 2008
Net loss for the (2,455,847) (2,455,847)
year
Stock options and - - 15,423
restricted shares
vested
Exercise of - - 4,331
warrants
Exercise of stock - - 3,401
options and
restricted shares
Unrealized loss (282,170) - (282,170)
recognized on
translation of
self-sustaining
foreign operations
Unrealized loss (27,480) - (27,480)
recognized on
translation of
self-sustaining
foreign
discontinued
operations
Realized loss on 10,163 - 10,163
sale of Gold
One(1)
Fair value (188) - (188)
adjustments on
available for sale
securities, net of
tax
Balance as at (247,708) (2,502,660) 950,538
December 31, 2008
Net loss for the - (36,087) (36,087)
year
Stock options and - - 7,502
restricted shares
vested
Exercise of stock - - 1,230
options and
restricted shares
Issuance of 388
contingent shares
Unrealized gain 16,391 - 16,391
recognized on
translation of
self-sustaining
foreign operations
Realized loss on 13,074 - 13,074
sale of Gold
One(1)
Realized loss on 234,533 - 234,533
sale of Uranium
One Africa (note
3.3)
Acquisition of - - 293,229
Karatau (note 3.1)
Fair value 102 - 102
adjustments on
available for sale
securities
Balance as at 16,392 (2,538,747) 1,480,900
December 31, 2009
The accompanying notes form an integral part of these Annual Consolidated
Financial Statements
(1) Gold One International Limited (formerly Aflease Gold)
Consolidated statements of Comprehensive Income / (Loss)
For the years ended December 31, 2009 and 2008
(in United States dollars)
Dec 31, Dec 31, 2008
2009
$`000 $`000
Unrealized gain / (loss) recognized on 16,391 (282,170)
translation of self-sustaining foreign
operations
Unrealized loss recognized on - (27,480)
translation of self-sustaining foreign
discontinued operations
Realized loss on sale of Gold One 13,074 10,163
Realized loss on sale of Uranium One 234,533 -
Africa
Fair value adjustments on available 102 (188)
for sale securities
Other comprehensive income / (loss) 264,100 (299,675)
for the year
Net loss (36,087) (2,455,847)
Comprehensive income / (loss) 228,013 (2,755,522)
Consolidated Statements of Accumulated Other Comprehensive Income / (Loss)
As at December 31, 2009 and 2008
(in United States dollars)
Dec 31, Dec 31, 2008
2009
$`000 $`000
Accumulated other comprehensive (loss) (247,708) 51,967
/ income at January 1
Other comprehensive income / (loss) 264,100 (299,675)
for the year
16,392 (247,708)
Deficit (2,538,747) (2,502,660)
Accumulated other comprehensive loss (2,522,355) (2,750,368)
and deficit
Components of accumulated other
comprehensive income / (loss) at the
end of the year:
Unrealized foreign exchange adjustment 16,290 (234,634)
- continuing operations
Unrealized foreign exchange adjustment - (13,074)
- discontinued operations
Available for sale marketable 102 -
securities and investments
16,392 (247,708)
The accompanying notes form an integral part of these Annual Consolidated
Financial Statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 2009 and 2008
(in United States dollars)
Year ended
Dec 31, Dec 31, 2008
2009
Notes $`000 $`000
Net profit / (loss) from continuing (38,078) (2,333,587)
operations
Items not affecting cash:
- Fair value adjustment included in 15 (7,227) -
revenue
- Depreciation and depletion 46,383 22,566
- Impairment of mineral interest plant 8.1 265,456 3,306,001
and equipment
- Gain / (loss) on available for sale (193) (4,345)
securities
- Stock option and restricted share 17 7,502 15,423
expense
- Interest accrued on loans and 3,728 10,195
debentures
- Unrealized foreign exchange loss 19 (55,950) 1,339
- Future income tax recovery 14 (206,379) (1,013,634)
- Other 497 (562)
Movement in non-cash working capital 20 (9,658) 32,730
Cash flows (used in) / from operating 6,081 36,126
activities
Acquisition of mineral interests, plant (68,208) (216,757)
and equipment
Pre-production revenue capitalized 2,587 -
Advance cash payments for other assets (3,629) (1,036)
Acquisition of Karatau, net of (8,228) -
acquisition costs
Acquisition of SKZ-U, net of acquisition 1,290 -
costs
Proceeds on sale of Honeymoon, net of - 34,098
costs
Cash advance for sulphuric acid plant (5,385) (5,959)
investment
Advance cash receipts for sale of - 3,100
portion of Gold One
Proceeds on sale of Gold One 20,972 44,542
Proceeds on sale of available for sale 487 24,927
securities
Cash proceeds from joint ventures 8,167 23,767
Proceeds on sale of mineral interests, 7,304 -
plant and equipment
Deposit for purchase of Christensen 3.2 (8,750) -
Ranch
Short term loan repaid 1,093 -
Cash flows used in investing activities (52,300) (93,318)
Common shares issued, net of issue costs 1,230 7,732
Loans received by Kyzylkum 12,000 18,000
Draw-down on credit facility - 60,467
Cash flows from financing activities 13,230 86,199
Effects of exchange rate changes on cash 5,229 (12,374)
and cash equivalents
Net (decrease) / increase in cash and (27,760) 16,633
cash equivalents from continuing
operations
Cash and cash equivalents at the beginning of 176,225 159,592
the year
Cash and cash equivalents at the end of 148,465 176,225
the year
Supplemental cash flow information (note 20)
The accompanying notes form an integral part of these Annual Consolidated
Financial Statements
Notes to the Consolidated Financial Statements
As at December 31, 2009 and 2008
(in United States dollars)
1 NATURE OF OPERATIONS
Uranium One Inc. ("Uranium One"), its subsidiaries and joint ventures
(collectively, the "Corporation") is a Canadian Corporation engaged through
subsidiaries and joint ventures in the mining and production of uranium,
and in the acquisition, exploration and development of properties for the
production of uranium in Kazakhstan, the United States, Australia and South
Africa.
Through the Betpak Dala joint venture, Uranium One owns a 70% interest in
the Akdala and South Inkai uranium mines in Kazakhstan. The Corporation
holds a 50% interest in the Karatau joint venture, which owns the Karatau
uranium mine in Kazakhstan, and a 30% interest in the Kyzylkum joint
venture, which owns the Kharasan Project in Kazakhstan. In the United
States, the Corporation owns projects in the Powder River and Great Divide
basins in Wyoming. The Corporation owns a 51% interest in the Honeymoon
Uranium Project in Australia. The Corporation owns, either directly or
through joint ventures, a large portfolio of uranium exploration properties
in the western United States, South Australia, South Africa, and Canada.
2 SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of presentation and principles of consolidation
The consolidated financial statements of the Corporation have been prepared
in accordance with Canadian generally accepted accounting principles
("Canadian GAAP").
The consolidated financial statements include the accounts of Uranium One,
its subsidiaries and the proportionate share of its interests in joint
ventures. All intercompany balances and transactions have been eliminated.
The consolidated balance sheet, statement of operations, cash flow and
certain comparative figures have been restated for discontinued operations.
The following are the Corporation`s principal mineral properties as at
December 31, 2009:
Operating mine:
Entity Mineral Location Ownership Status
property/Operation
Betpak Akdala Uranium Kazakhstan 70% Proportionately
Dala LLP Mine consolidated
Betpak South Inkai Kazakhstan 70% Proportionately
Dala LLP Uranium Mine(1) consolidated
Karatau Karatau Uranium Kazakhstan 50% Proportionately
LLP Mine(2) consolidated
Advanced development projects:
Entity Mineral Location Ownership Status
property/Operation
Kyzylkum Kharasan Uranium Kazakhstan 30% Proportionately
LLP Project consolidated
The Corporation is also developing the following mineral properties:
Entity Mineral Location Ownership Status
property/Operation
Uranium United States United 100% Consolidated
One development States
Americas, projects
Inc.(3)
Honeymoon Honeymoon Project Australia 51% Proportionately
Uranium consolidated
Project
Joint
Venture
The Corporation owns a 19% interest in the SKZ-U joint venture, which is
constructing a sulphuric acid plant in Kazakhstan (note 6.1).
(1) The South Inkai Project commenced commercial operations on January 1,
2009
(2) The Karatau Uranium Mine was acquired on December 21, 2009. Refer to
note 3.1
(3) Previously Energy Metals Corp (US)
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 Adoption of new standards
Goodwill and Intangible Assets
On January 1, 2009, the Corporation adopted the new Canadian Institute of
Chartered Accountants ("CICA") Handbook Section 3064 - "Goodwill and
Intangible Assets", which replaces CICA Handbook Sections 3062 - "Goodwill
and Other Intangible Assets" and 3450 - "Research and Development Costs".
The revised standard aligns Canadian GAAP for goodwill and intangible
assets with IFRS. The new standard provides more comprehensive guidance on
intangible assets, in particular for internally developed intangible
assets. Standards concerning goodwill are unchanged from the standards
included in Section 3062. On adoption of CICA Section 3064, Emerging
Issues Committee Abstract 27 - "Revenues and expenditures during the pre-
operating period" no longer applies to the Corporation. The adoption of
this standard did not result in a material impact on the Corporation`s
consolidated financial statements
Credit risk and fair value of financial assets and financial liabilities
In January 2009, the CICA issued EIC Abstract 173 - "Credit Risk and the
Fair Value of Financial Assets and Financial Liabilities" ("EIC-173"). EIC-
173 provides guidance on how to take into account credit risk of an entity
and counterparty when determining the fair value of financial assets and
financial liabilities, including derivative instruments. EIC-173 is
applicable for the Corporation`s consolidated financial statements for its
fiscal year ended December 31, 2009, with retrospective application. The
adoption of EIC-173 did not result in a material impact on the
Corporation`s consolidated financial statements.
Mining exploration costs
In March 2009, the CICA issued EIC Abstract 174 - "Mining Exploration
Costs" ("EIC-174") which supersedes EIC Abstract 126 - Accounting by Mining
Enterprises for Exploration Costs, to provide additional guidance for
mining exploration enterprises on the accounting for capitalization of
exploration costs, when an assessment of impairment of these costs is
required and conditions indicate impairment. EIC-174 is applicable for the
Corporation`s interim and annual consolidated financial statements for its
fiscal year ended December 31, 2009, with retrospective application. The
adoption of EIC-174 did not result in a material impact on the
Corporation`s consolidated financial statements.
Financial instruments - disclosures
In June 2009, the CICA amended Handbook Section 3862 - "Financial
Instruments - Disclosures" to include additional disclosure requirements
about fair value measurements of financial instruments and to enhance
liquidity risk disclosure requirements for publicly accountable
enterprises. The amendments have been incorporated into the Corporation`s
annual consolidated financial statements for its fiscal year ended December
31, 2009.
Financial instruments - recognition and measurement
During 2009, the Corporation adopted the amendments made by the CICA to
Handbook Section 3855 - "Financial Instruments - Recognition and
Measurement" ("Section 3855"). Section 3855 was amended to provide
additional guidance concerning the assessment of embedded derivatives upon
reclassification of a financial asset out of the held-for-trading category,
amend the definition of loans and receivables, amend the categories of
financial assets into which debt instruments are required or permitted to
be classified, amend the impairment guidance for held-to-maturity debt
instruments and require reversal of impairment losses on available-for-sale
debt instruments when conditions have changed. The additional guidance on
assessment of embedded derivatives is applicable for reclassifications made
on or after July 1, 2009. All other amendments are applicable as of
January 1, 2009. The adoption of these amendments did not result in a
material impact on the Corporation`s consolidated financial statements.
2.3 Measurement and reporting currency
Items included in the financial statements of each entity in the
Corporation are measured using the currency that best reflects the economic
substance of the underlying events and circumstances relevant to that
entity (the "functional currency").
The Corporation`s reporting currency is the United States dollar. Uranium
One, its subsidiaries and joint ventures operate in Kazakhstan, the United
States, Australia, South Africa and Canada.
The financial statements of the entities that are determined to be
integrated foreign operations have been translated into United States
dollars by translating foreign currency denominated monetary assets and
liabilities, which includes future income tax, at rates of exchange in
effect at the balance sheet date. Non-monetary items are translated at
historical exchange rates and revenues and expenses at average rates of
exchange during the period. Exchange gains and losses arising on
translation are included in the consolidated statements of operations.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
The financial statements of the entities that are determined to be self-
sustaining foreign operations have been translated into United States
dollars by translating all assets and liabilities, which includes future
income tax, at rates of exchange in effect at the balance sheet date.
Revenues and expenses are translated at average exchange rates for the
period. All resulting exchange differences are included in accumulated
other comprehensive income / (loss) on the balance sheet.
2.4 Inventories
Inventories of solutions and uranium concentrates are valued at the lower
of average production cost or net realizable value. Production costs
include the cost of raw materials, direct labour, mine-site related
overhead expenses and depreciation and depletion of mineral interests.
Materials and supplies are valued on the weighted average basis and
recorded at the lower of average cost or replacement cost.
2.5 Mineral interests, plant and equipment
Mineral interests, plant and equipment are recorded at cost less
accumulated depreciation and depletion.
Mineral interests, plant and equipment includes capitalized expenditures
related to the development of mineral properties and related plant and
equipment. Capitalized costs and plant and equipment are depreciated and
depleted using either a unit-of-production method, over the estimated
economic life of the mine to which they relate, or using the straight-line
method over their estimated useful lives.
The costs associated with mineral interests are separately allocated to
reserves, resources and exploration potential, and include acquired
interests in production, development and exploration stage properties
representing the fair value at the time they were acquired. The value
allocated to reserves is depreciated on a unit-of-production method over
the estimated recoverable proven and probable reserves at the mine. The
reserve value is noted as depletable mineral properties for operations in
commercial production. The resource value represents the property
interests that are believed to potentially contain economic mineralized
material such as inferred material; measured, indicated, and inferred
resources with insufficient drill spacing to qualify as proven and probable
reserves; and inferred resources in close proximity to proven and probable
reserves.
Resource value and exploration potential value are classified as non-
depletable mineral interests. At least annually or when otherwise
appropriate, value from the non-depletable category for operating mines
will be transferred to the depletable category as a result of an analysis
of the conversion of resources or exploration potential into reserves.
Costs related to property acquisitions are capitalized until the viability
of the mineral property is determined. When it is determined that a
property is not economically viable the capitalized costs are written down.
Exploration expenditures on properties not advanced enough to identify
their development potential are charged to operations as incurred.
Mining expenditures incurred either to develop new ore bodies or to develop
mine areas in advance of current production are capitalized. Commercial
production is deemed to have commenced when management determines that the
completion of operational commissioning of major mine and plant components
is completed, operating results are being achieved consistently for a
period of time and that there are indicators that these operating results
will be continued. Mine development costs incurred to sustain current
production are capitalized.
Upon sale or abandonment of any mineral interest, plant and equipment, the
cost and related accumulated depreciation or accumulated depletion, are
written off and any gains or losses thereon are included in the statement
of operations.
2.6 Impairment of long-lived assets
The Corporation reviews the carrying values of its mineral interests, plant
and equipment when changes in circumstances indicate that those carrying
values may not be recoverable. Estimated future net cash flows are
calculated using estimated recoverable reserves, estimated future commodity
prices and the expected future operating and capital costs. An impairment
loss is recognized when the carrying value of an asset held for use exceeds
the sum of undiscounted future net cash flows. An impairment loss is
measured as the amount by which the asset`s carrying amount exceeds its
fair value.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.7 Asset retirement obligations
The Corporation recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of mineral property, plant and
equipment, when those obligations result from the acquisition,
construction, development or normal operation of the assets. Initially,
the net present value of the liability for an asset retirement obligation
is recognized in the period incurred. The net present value of the
liability is added to the carrying amount of the associated asset and
amortized over the asset`s useful life. The liability is accreted over
time through periodic charges to earnings and is reduced by actual costs of
reclamation. Subsequent to the initial measurement, the asset retirement
obligation is adjusted at the end of each year to reflect changes in the
estimated future cash flows underlying the obligation.
2.8 Revenue recognition
Revenue from uranium sales is recognized when: (i) persuasive evidence of
an arrangement exists; (ii) the risks and rewards of ownership pass to the
purchaser, including delivery of the product; (iii) the selling price is
fixed or determinable, and (iv) collectability is reasonably assured.
In a uranium supply arrangement, the Corporation is contractually obligated
to provide uranium concentrates to its customers. Uranium that was
produced by the Corporation is delivered to conversion facilities
("Converters") where the Converter will credit the Corporation`s account
for the volume of accepted uranium. Based on delivery terms in a sales
contract with its customer, the Corporation instructs the Converter to
transfer title of a contractually specified quantity of uranium to the
customer`s account at the Converter. At this point, the Corporation
invoices the customer and recognizes revenue for the uranium supply. The
Corporation does not recognize revenue in circumstances where it delivers
borrowed material into contracts.
Interest income is recognized on a time proportion basis, taking account of
the principal outstanding and the effective interest rate over the period
to maturity, when it is determined that such income will accrue to the
Corporation.
2.9 Future income and mining taxes
The Corporation uses the liability method of accounting for income and
mining taxes. Under the liability method, future tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and for tax losses
and other deductions carried forward. For business acquisitions, the
liability method results in a gross up of mining interests to reflect the
recognition of the future tax liabilities for the tax effect of such
differences.
Future tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply when the asset is
realized or the liability settled. A reduction in respect of the benefit of
a future tax asset (a valuation allowance) is recorded against any future
tax asset if it is not more likely than not to be realized. The effect on
future tax assets and liabilities of a change in tax rates is recognized in
the statement of operations in the period in which the change is
substantively enacted.
2.10 Stock based compensation
The Corporation uses the fair value method of accounting for all stock
based compensation awards ("Awards"). Under this method, the Corporation
determines the fair value of the compensation expense for all Awards on the
date of grant using an option pricing model. The fair value of the Awards
is expensed over the vesting period of the Awards.
Upon exercise of the Awards, the related amount of stock based compensation
previously expensed is transferred from contributed surplus and together
with consideration received, is recorded as share capital.
The Corporation`s stock based compensation plans consist of the following:
Options
Under Uranium One`s Stock Option Plan, options granted are non-assignable
and may be granted for a term not exceeding ten years. The plan is
administered by the Board of Directors, which determines individual
eligibility under the plan, the number of shares reserved underlying the
options granted to each individual (not exceeding 5% of issued and
outstanding shares to any insider and not exceeding 1% of the issued and
outstanding shares to any non-employee director on a non-diluted basis) and
any vesting period which, pursuant to the stock option plan was previously
one-third on the grant date, one-third on the first anniversary of the
grant date and the remainder on the second anniversary of the grant date.
On December 8, 2006 the Board of Directors decided to adopt an amended
vesting schedule such that any options granted on and after December 8,
2006, would vest as to one-third on the first anniversary of the grant
date, one-third on the second anniversary of the grant date and one-third
on the third anniversary of the grant date. The maximum number of shares
of Uranium One that are issuable pursuant to the plan is limited to 7.2% of
issued and outstanding shares.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted shares
Under the Uranium One Restricted Share Plan, restricted share rights are
granted to eligible employees, contractors and directors. Each restricted
share right is exercisable for one common share of Uranium One at the end
of the restricted period for no additional consideration. The vesting
period for restricted shares that are currently issued is either two-thirds
on the first anniversary of the grant date and the remainder on the second
anniversary of the grant date, or total vesting on the third anniversary of
the grant date. The aggregate maximum number of shares available for
issuance under the restricted share plan is capped at three million. The
number of shares for issuance to non-employee directors may not exceed 0.5%
of the total number of common shares outstanding on a non-diluted basis.
2.11 Earnings / loss per share
Earnings / loss per share calculations are based on the weighted average
number of common shares and common share equivalents issued and outstanding
during the year. The calculation of diluted earnings per share assumes
that outstanding options and warrants that are dilutive to earnings per
share are exercised and the proceeds are used to repurchase shares of
Uranium One at the average market price of the shares for the period. The
effect is to increase the number of shares used to calculate diluted
earnings per share. Dilution from convertible securities is calculated
based on the number of shares to be issued after taking into account the
reduction of the related after tax interest expense. The impact of
outstanding share options, warrants and convertible debentures are excluded
from the diluted share calculation for loss per share amounts, because it
is anti-dilutive.
2.12 Financial instruments
The Corporation`s financial instruments primarily consist of cash, short-
term money market investments, marketable securities, accounts receivable,
accounts payable, loans to joint ventures, draw downs against credit
facilities, long term debt and convertible debentures. The fair value of
the financial instruments approximates their carrying values, due primarily
to their immediate or short-term maturity, except for the fair values of
marketable securities that have been estimated by reference to quoted
market prices for actual or similar instruments where available and
disclosed accordingly.
Comprehensive income comprises the Corporation`s net income and other
comprehensive income. Comprehensive income represents changes in
shareholders` equity during a period arising from non-owner sources and,
for the Corporation, other comprehensive income includes currency
translation adjustments on its net investment in self-sustaining foreign
operations, and unrealized gains and losses on available-for-sale
securities.
Financial assets and financial liabilities are recognized on the balance
sheet when the Corporation has become party to the contractual provisions
of the instruments. Financial instruments are initially measured at fair
value, which includes transaction costs, except for financial instruments
classified as held for sale, where the transaction cost is expensed through
the statement of operations. Subsequent to initial recognition these
instruments are measured as set out below:
Investments
Purchases and sales of marketable investments are recognized on the trade
date at fair value, which is the date that the Corporation commits to
purchase or sell the asset. After initial recognition, the investments are
classified as available for sale investments carried at fair value, with
the fair value adjustments accounted for in other comprehensive income.
When available for sale investments are sold, the cumulative market rate
adjustment previously recorded in other comprehensive income is recognized
in the statement of operations.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances, deposits
held at call and certificates of deposits, money market instruments,
including cashable guaranteed investment certificates, bearer deposit notes
and commercial paper with a remaining maturity of three months or less at
date of purchase, and are carried at fair value.
Financial assets
Financial assets that are classified as held for trading are recognized at
fair value on the trade date, which is the date that the Corporation
commits to purchase or sell the asset. After initial recognition, the
assets are carried at fair value, with the fair value adjustments accounted
for in the statement of operations.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts receivable
Accounts receivable are carried at amortized cost unless a provision has
been recorded for uncollectability of these receivables. A provision for
impairment of accounts receivable is established when there is objective
evidence that the Corporation will not be able to collect all amounts due
according to the original terms of receivables.
Impairment and uncollectability of financial assets
An assessment is made at each balance sheet date to determine whether there
is objective evidence that a financial asset or group of financial assets
may be impaired. If such evidence exists, the estimated recoverable amount
of the asset is determined and an impairment loss is recognized for the
difference between the recoverable amount and the carrying amount as
follows: the carrying amount of the asset is reduced to its discounted
estimated recoverable amount, either directly or through the use of an
allowance account and the resulting loss is recognized in the consolidated
statement of operations for the year.
For investments included under financial instruments, if there is an other
than temporary decline in the value of the investment, such reduction is
included in the consolidated statement of operations.
Financial liabilities
After initial recognition, financial liabilities, other than held for
trading liabilities, are subsequently measured at amortized cost using the
effective interest rate method. Amortized cost is calculated by taking
into account any transaction costs and any discount or premium on
settlement.
Financial liabilities that are classified as held for trading are
recognized at fair value on the trade date, which is the date that the
Corporation commits to the contract. After initial recognition, the
liabilities are carried at fair market value, with the fair value
adjustments accounted for in the statement of operations.
Accounts payable
Liabilities for trade and other payables which are normally settled on 30
to 90 day terms are carried at amortized cost.
Loans payable
Loans payable are recognized initially at the proceeds received, net of
transaction costs incurred. Loans payable are subsequently measured at
amortized cost using the effective interest rate method. Any difference
between proceeds (net of transaction costs) and the redemption value is
recognized in the statement of operations over the period of the loan.
Offset
Where a legally enforceable right of offset exists for recognized financial
assets and financial liabilities, and there is an intention to settle the
liability and realize the asset simultaneously, or settle on a net basis,
all related financial effects are offset.
Compound instruments
The component parts of compound instruments are classified separately as
financial liabilities and equity in accordance with the substance of the
contractual agreement. At the date of issue, the fair value of the
liability component is estimated using the prevailing market interest rate
for similar non-convertible instruments. This amount is recorded as a
liability on an amortized cost basis until extinguished upon conversion or
at the instrument`s maturity date. The equity component is determined by
deducting the amount of the liability component from the face value of the
compound instrument as a whole. This is recognized and included in equity,
net of income tax effects, and is not subsequently remeasured.
Embedded derivatives
Derivatives may be embedded in other financial instruments (the "host
instrument"). Embedded derivatives are treated as separate derivatives
when their economic characteristics and risks are not clearly and closely
related to those of the host instrument, the terms of the embedded
derivative are the same as those of a stand-alone derivative, and the
combined contract is not held for trading or designated at fair value.
These embedded derivatives are measured at fair value with subsequent
changes recognized in gains or losses on derivatives within interest and
other in the consolidated statement of operations.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.13 Equity instruments
Equity instruments issued by Uranium One are recorded at the proceeds
received, net of direct issue costs.
2.14 Use of estimates
The preparation of financial statements in conformity with Canadian GAAP
requires the Corporation`s management to make estimates and assumptions
about future events that affect the amounts reported in the consolidated
financial statements and related notes to the consolidated financial
statements. Actual results may differ from those estimates.
Significant estimates used in the preparation of these consolidated
financial statements include, but are not limited to, the recoverability of
accounts receivable and investments, the proven and probable reserves,
resources and exploration potential of mineral interests and the related
depletion and depreciation, the estimated net realizable value of
inventories, impairment of mineral interests, plant and equipment,
determination of fair values of financial instruments, the fair value for
stock-based compensation, the valuation of investments, the provision for
income taxes and composition of income tax assets and liabilities, the
expected economic lives of and the estimated future operating results and
net cash flows from mining interests, the anticipated costs of reclamation
and closure cost obligations, and the fair value of assets and liabilities
acquired in business combinations and asset acquisitions.
2.15 Non-controlling interest
Non-controlling interests exist with respect to less than wholly-owned
subsidiaries of the Corporation and represent the outside interest`s share
of the carrying values of the subsidiaries` net assets. When the
subsidiary company issues its own shares to outside parties, a dilution
gain or loss arises as a result of the difference between the Corporation`s
share of the proceeds and the carrying value of the underlying equity.
2.16 Variable interest entities
Variable interest entities ("VIE`s") as defined by the Accounting Standards
Board in Accounting Guideline ("AcG") 15, "Consolidation of Variable
Interest Entities" are entities in which equity investors do not have
characteristics of a "controlling financial interest" or there is not
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support. VIE`s are subject to
consolidation by the primary beneficiary who will absorb the majority of
the entity`s expected losses and/or expected residual returns. The
Corporation has determined that none of its equity investments, contracts
or other holdings qualify as VIE`s.
2.17 Recent accounting pronouncements
Financial instruments - recognition and measurement
In June 2009, the CICA amended Section 3855 to clarify the application of
the effective interest rate method after a debt instrument has been
impaired and when an embedded prepayment option is separated from its host
debt instrument at initial recognition for accounting purposes. The
amendments are applicable for the Corporation`s interim and annual
financial statements for its fiscal year beginning January 1, 2011.
Earlier adoption is permitted.
Business combinations
CICA Section 1582 - "Business Combinations", which replaces CICA Section
1581 - "Business Combinations", establishes standards for the accounting
for a business combination. It is the Canadian GAAP equivalent to
International Financial Reporting Standard ("IFRS") 3, "Business
Combinations". This standard is effective for the Corporation`s business
combinations with acquisition dates on or after January 1, 2011. Early
adoption is permitted. The Corporation will early adopt this standard
effective January 1, 2010. The standard applies prospectively and may have
a material impact on the accounting for business combinations concluded
from 2010 onwards.
Consolidated financial statements and non-controlling interests
CICA Section 1601 - "Consolidated Financial Statements" ("Section 1601")
and Section 1602 - "Non-controlling Interests" ("Section 1602") replaces
CICA Handbook Section 1600 - "Consolidated Financial Statements". Sections
1601 and 1602 establish standards for preparation of consolidated financial
statements and the accounting for non-controlling interests in financial
statements that are equivalent to the standards under IFRS. These
standards are effective for the Corporation for interim and annual
financial statements beginning on January 1, 2011. Early adoption is
permitted. The Corporation will early adopt this standard effective
January 1, 2010. The standard applies prospectively and may have a
material impact on the Corporation`s financial statements from 2010
onwards.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
International Financial Reporting Standards (IFRS)
In February 2008, the Canadian Accounting Standards Board confirmed that
publicly accountable enterprises will be required to adopt IFRS for fiscal
years beginning on or after January 1, 2011, with earlier adoption
permitted. Accordingly, the conversion to IFRS will be applicable to the
Corporation`s reporting no later than in the first quarter of 2011, with
restatement of comparative information presented.
3 ACQUISITIONS AND DISPOSALS
3.1 Acquisition of the Karatau Uranium Mine
Uranium One announced on June 15, 2009 the signing of a definitive purchase
agreement to acquire a 50% joint venture interest in the Karatau Uranium
Mine ("Karatau") in Kazakhstan from JSC Atomredmetzoloto ("ARMZ"), the
Russian state-owned uranium mining company. The other 50% joint venture
interest in Karatau is held by JSC NAC Kazatomprom, the Kazakh-state owned
uranium mining company. The acquisition closed in escrow on December 14,
2009 and the consideration held in escrow was released on December 21,
2009, from which date the Corporation consolidates its interest using the
proportional consolidation method.
The purchase price was paid by way of the issuance of 117 million common
shares of Uranium One and a promissory note of $90 million. The promissory
note was repaid on January 18, 2010. The purchase agreement also provides
for contingent payments to ARMZ of up to $60 million, payable in three
equal tranches over the period between 2010 and 2012 subject to certain,
post-closing tax related, adjustments. The first payment of $20 million
was made during January 2010. Due to uncertainty regarding the payment of
the remaining $40 million, it was not recognized as a liability on
acquisition.
As a result of the transaction, ARMZ holds an indirect 19.92% interest in
Uranium One. ARMZ has agreed to a standstill covenant under which it may
not (subject to certain exceptions), without Uranium One`s prior consent,
for a period of at least five years from closing increase their ownership
to more than 19.95% of Uranium One`s outstanding common shares. Subsequent
to December 31, 2009, the Corporation agreed that ARMZ may temporarily
exceed the 19.95% standstill covenant until January 29, 2011. This will
allow ARMZ to settle certain option agreements that they entered into with
third parties based on the expectation that the transaction with Japan
Uranium Management Inc. (note 27), as originally structured, would have
closed.
The value of the Uranium One shares issued was calculated using the
weighted average share price of Uranium One shares two days before, the day
of, and two days after the date of the announcement of the arrangement.
The aggregate fair values of assets acquired and liabilities assumed were
as follows on acquisition date:
$`000
Purchase price:
Promissory note 90,000
Common shares 293,229
Contingent payment 20,000
Acquisition costs 8,751
411,980
Net assets acquired:
Cash and cash equivalents 523
Inventory 26,761
Other current assets 3,102
Mineral interests, plant and 511,032
equipment
Other non-current assets 2,218
Accounts payable and accrued (28,889)
liabilities
Other current liabilities (25,051)
Future income tax liabilities (74,850)
Other non-current liabilities (2,866)
411,980
3 ACQUISITIONS AND DISPOSALS (continued)
3.2 Acquisition of Christensen Ranch and Irigaray
The Corporation entered into a definitive agreement on August 7, 2009 to
acquire 100% of the MALCO Joint Venture ("MALCO") from wholly-owned
subsidiaries of AREVA and ElectricitE de France for $35 million in cash.
The assets of MALCO include the licensed and permitted Irigaray ISR central
processing plant, the Christensen Ranch satellite ISR facility and
associated U3O8 resources located in the Powder River Basin of Wyoming.
Pursuant to the acquisition agreement, the Corporation placed a deposit of
$8.8 million in escrow to be applied against the purchase price. The
acquisition closed on January 25, 2010.
3.3 Assets held for sale
Uranium One Africa
In May 2009, the Corporation committed to a plan to sell Uranium One Africa
Limited, ("Uranium One Africa"), a wholly owned subsidiary of the
Corporation. Uranium One Africa owns the Dominion Uranium Project, which
the Corporation has placed on care and maintenance during the third quarter
of 2008.
The Corporation estimates it will receive cash proceeds of $38.5 million,
net of costs related to the sale. The net carrying value of the investment
of $285.0 million was impaired to the estimated proceeds of $38.5 million,
resulting in an impairment of $246.5 million. The Corporation had an
accumulated unrealized translation loss relating to Uranium One Africa of
$234.5 million, previously recorded within other comprehensive income,
which has been released through the statement of operations as a result of
the reclassification of the Corporation`s investment in Uranium One Africa
to assets held for sale.
December 31, 2009 Dominion
$`000
Total assets 51,460
Total liabilities (12,944)
Net carrying value 38,516
Net carrying value 50,508
before impairment
Accumulated 234,533
translation losses
Carrying value before 285,041
impairment
Impairment (246,525)
Estimated recoverable 38,516
amount, net of costs
3 ACQUISITIONS AND DISPOSALS (continued)
3.4 Disposals
During December 2009, the Corporation disposed of its Texas assets to
Uranium Energy Corp ("UEC") for 2.5 million restricted common shares of UEC
which had a market value of $8.5 million, net of closing costs of $0.2
million. In addition the Corporation disposed of certain other non-core
assets during the year.
Texas Other Total
assets properties
$`000 $`000 $`000
Assets and liabilities
sold:
Mineral interest, 22,051 3,580 25,631
plant and equipment
Accounts receivables 51 - 51
and other receivables
Other assets 2,327 - 2,327
Accounts payables and (59) - (59)
accrued liabilities
Other current (90) - (90)
liabilities
Asset retirement (962) - (962)
obligations
Other non-current (74) - (74)
liabilities
Carrying value of 23,244 3,580 26,824
assets and liabilities
sold
Proceeds on sales:
Carrying value 23,244 3,580 26,824
Impairment (14,767) (3,239) (18,006)
Proceeds, net of 8,477 341 8,818
closing costs
4 CASH AND CASH EQUIVALENTS
Dec 31, Dec 31,
2009 2008
$`000 $`000
Cash 44,362 134,444
Money market instruments, including 104,103 41,781
cashable guaranteed investment
certificates, bearer deposit notes
and commercial paper
148,465 176,225
Cash and cash equivalents do not include any asset backed commercial paper.
5 ACCOUNTS AND OTHER RECEIVABLES
Dec 31, Dec 31,
2009 2008
$`000 $`000
Trade receivables 25,825 26,194
Value added tax and general sales 9,004 5,886
tax
Prepayments and advances 4,747 4,151
Other receivables 2,829 3,695
42,405 39,926
6 JOINT VENTURES
6.1 Proportionate interests in joint ventures
The Corporation owns the following interests in joint ventures:
Betpak Dala 70%
Kyzylkum 30%
Karatau 50%
SKZ-U LLP 19%
Honeymoon 51%
Australia Exploration 51%
The Corporation acquired a 19% joint control interest in SKZ-U LLP ("SKZ-
U") during 2009 to ensure long term sulphuric acid supply to Kyzylkum and
other projects in the region. The SKZ-U joint venture was established to
construct a sulphuric acid plant near Kharasan at Zhanakorgan.
The Corporation acquired a 50% joint control interest in Karatau during
2009 (note 3.1).
The Corporation`s proportionate share of the assets and liabilities of the
joint ventures are as follows:
As at Betpak Kyzylkum Karatau SKZ-U Honeymo Total
December Dala on &
31, 2009 Austral
ia
explora
tion
$`000 $`000 $`000 $`000 $`000 $`000
Cash 3,062 871 160 412 5,163
Other 77,871 274 18,930 5 1,388 98,468
current
assets
Mineral 658,509 205,293 510,494 3,537 78,039 1,455,872
interests,
plant and
equipment
Other 1,479 389 1,924 7,018 - 10,810
assets
Current (8,494) (4,034) (27,020) (38) (2,575) (42,161)
liabilities
Other (1,479) (48,781) (16,687) - (34) (66,981)
liabilities
(1) (2)
Future (55,844) (12,223) (74,637) - (4,074) (146,778)
income tax
liabilities
Asset (8,170) (1,356) (2,847) - (705) (13,078)
retirement
obligation
Net Assets 666,934 140,433 410,317 10,934 77,202 1,305,820
In addition to the $35 million loan (note 6.2) from the Corporation,
Kyzylkum negotiated unsecured bank loan facilities totaling $160 million in
prior periods. One facility, in the amount of $70 million, was obtained
from the Japan Bank for International Cooperation ("JBIC") and the other
facility, in the amount of $90 million, was obtained from Citibank. These
facilities were fully drawn down as at December 31, 2009, and the
Corporation`s share of these facilities is $48 million.
Karatau negotiated a secured short term bank loan totaling $10 million with
Citibank and the Corporation`s share of this loan is $5 million.
As at Betpak Kyzylkum Honeymoo Total
December Dala n &
31, 2008 Australi
a
explorat
ion
$`000 $`000 $`000 $`000
Cash 725 92 - 817
Other 8,641 656 16 9,313
current
assets
Mineral 700,006 193,018 38,619 931,643
interests,
plant and
equipment
Other 703 4,005 - 4,708
assets
Current (18,098) (3,084) (653) (21,835)
liabilities
Other (1,636) (36,009) (11) (37,656)
liabilities
(1)
Future (270,411) (72,019) (3,271) (345,701)
income tax
liabilities
Asset (4,609) (117) (223) (4,949)
retirement
obligation
Net Assets 415,321 86,542 34,477 536,340
In addition to the $46.7 million loan (note 6.2) from the Corporation,
Kyzylkum negotiated unsecured bank loan facilities totaling $100 million in
2007 and another $60 million in 2008. One facility, in the amount of $70
million, was obtained from the Japan Bank for International Cooperation
("JBIC") and the other facility, in the amount of $90 million, was obtained
from Citibank. Total draw downs against these facilities amounted to $120
million as at December 31, 2008, of which the Corporation`s share was $36
million.
6 JOINT VENTURES (CONTINUED)
6.1 Proportionate interests in joint ventures (continued)
The Corporation`s proportionate share of revenue, expenses, net earnings /
(loss) and cash flows for the years ended December 31, 2009 and 2008 are as
follows:
Year ended December
31, 2009
Betpak Kyzylkum Karatau SKZ-U Honeymoo Total
Dala n &
Australi
a
explorat
ion
$`000 $`000 $`000 $`000 $`000 $`000
Revenue 138,473 - 10,710 - - 149,183
Expenses and (86,394) (455) (10,684) 5 (769) (98,297)
other income
Foreign 59,153 (11,497 (358) 56 - 70,348
exchange
gain /
(loss)
Earnings / 111,232 11,042 (332) 61 (769) 121,234
(loss)
before
income taxes
Current (16,567) - (1,228) (1) - (17,796)
income tax
expense
Future 164,561 46,403 (103) - (36) 210,825
income tax
recovery /
(expense)
Earnings / 259,226 57,445 (1,663) 60 (805) 314,263
(loss)
Cash flows 21,487 - 499 - - 21,986
(used in) /
from
operating
activities
Cash flows (19,150) (11,221) (339) (4,973) (24,281) (59,964)
used in
investing
activities
Cash flows - 12,000 - 5,385 29,444 46,829
from
financing
activities
Net increase 2,337 779 160 412 5,163 8,851
/ (decrease)
in cash
Year ended December
31, 2008
Betpak Kyzyl Honeym Total
Dala kum oon &
Austra
lia
explor
ation
$`000 $`000 $`000 $`000
Revenue 149,776 - - 149,776
Expenses and (50,680) 132 (56) (50,604)
other income
Foreign (18) 660 - 642
exchange
(loss) /
gain
Earnings / 99,078 792 (56) 99,814
(loss)
before
income taxes
Current (42,065) (42) - (42,107)
income tax
expense
Future 7,122 186 - 7,308
income tax
recovery
Earnings / 64,135 936 (56) 65,015
(loss)
Cash flows 64,344 (78) - 64,266
from / (used
in)
operating
activities
Cash flows (53,347) (21,4 - (74,836)
used in 89)
investing
activities
Cash flows (11,915) 18,00 - 6,085
(used in) / 0
from
financing
activities
Net decrease (918) (3,56 - (4,485)
in cash 7)
6 JOINT VENTURES (continued)
6.2 Loans to joint ventures
Dec 31, Dec 31,
2009 2008
$`000 $`000
Current portion
Kyzylkum - 19,158
- 19,158
Long term portion
SKZ-U 3,552 -
Kyzylkum 25,698 14,000
29,250 14,000
Total 29,250 33,158
Kyzylkum loan
The Corporation made loans to Kyzylkum pursuant to its obligation to
provide project financing for construction and commissioning of the
Kharasan Project in the amount of $80 million. The loans bear interest at
LIBOR plus 1.5% per annum, with interest payable on a semi-annual basis,
commencing within two years of initial funding.
Dec 31, Dec 31,
2009 2008
$`000 $`000
Balance at January 1 46,666 73,333
Repaid during the year (11,666) (26,667)
35,000 46,666
Interest accrued 1,711 702
Balance at December 31 36,711 47,368
Less: elimination of (11,013) (14,210)
proportionate share - 30%
25,698 33,158
Less: current portion - (19,158)
Long term portion 25,698 14,000
The loans to Kyzylkum are unsecured.
Kyzylkum has suspended scheduled payments of principal and interest to the
Corporation pending receipt of additional financing currently being
arranged by the Corporation and its partners in the Kyzylkum joint venture.
The repayments of the $35 million due from Kyzylkum are likely to be
deferred as part of the financing of Kyzylkum`s activities. The Corporation
therefore classified the amount outstanding on the loan to Kyzylkum as non-
current.
7 INVENTORIES
Dec 31, Dec 31,
2009 2008
$`000 $`000
Finished uranium concentrates 41,055 5,401
Solutions and concentrates in 24,871 2,584
process
Product inventory 65,926 7,985
Materials and supplies 5,708 9,405
71,634 17,390
All operating expenses and depreciation and depletion are processed to
inventory and expensed when the product is sold.
Finished uranium concentrates includes a fair value adjustment of $8.9
million that was processed on acquisition of Karatau, to increase the
carrying value to fair market value. The fair value adjustment will be
recognised as non-cash depreciation and depletion with the subsequent sale
of the inventory.
8 MINERAL INTERESTS, PLANT AND EQUIPMENT
December 31, 2009 Accumulate Net
d carrying
Cost amortizati Amount
on
$`000 $`000 $`000
Mineral interests 1,485, (82,852) 1,403,116
968
Plant and equipment 385,62 (40,453) 345,168
1
1,871, (123,305) 1,748,284
589
December 31, 2008 Accumulated Net
carrying
Cost amortization amount
$`000 $`000 $`000
Mineral interests 1,035,043 (46,850) 988,193
Plant and equipment 312,360 (15,138) 297,222
1,347,403 (61,988) 1,285,415
A summary by property of the net book value is as follows:
December Mineral interests
31, 2009
Non- Plant Total
depletab and
le equipmen
t
Depleta Total
ble
Country $`000 $`000 $`000 $`000 $`000
Akdala Mine Kazakhs 77,199 74,358 151,557 28,149 179,706
tan
South Inkai Kazakhs 194,753 181,068 375,821 102,598 478,419
Mine tan
Karatau Kazakhs 141,052 312,575 453,627 56,867 510,494
Mine tan
Kharasan Kazakhs - 140,078 140,078 68,752 208,830
Project tan
United United - 94,653 94,653 26,873 121,526
States States
development
projects
United United - 114,905 114,905 493 115,398
States States
exploration
projects
United United - 38,896 38,896 1,014 39,910
States States
conventiona
l mining
projects
Honeymoon Austral - 31,830 31,830 46,209 78,039
Project ia
Corporate - 1,749 1,749 14,213 15,962
and other
Total 413,004 990,112 1,403,116 345,168 1,748,284
8 MINERAL INTERESTS, PLANT AND EQUIPMENT (continued)
December 31, Mineral interests
2008
Non- Plant and Total
equipment
Depletable depletable Total
Country $`000 $`000 $`000 $`000 $`000
Akdala Mine Kazakhstan 92,739 74,358 167,097 28,622 195,719
South Inkai Kazakhstan - 396,963 396,963 107,017 503,980
Project
Kharasan Kazakhstan - 144,722 144,722 48,296 193,018
Project
Dominion South - - - 44,586 44,586
Project Africa
United United - 90,255 90,255 15,589 105,844
States States
development
projects
United United - 122,586 122,586 - 122,586
States States
exploration
projects
Hobson United - - - 22,026 22,026
Facility and States
La Palangana
Project
United United - 39,215 39,215 1,497 40,712
States States
conventional
mining
projects
Honeymoon Australia - 25,652 25,652 12,967 38,619
Project
Corporate - 1,703 1,703 16,622 18,325
and other
Total 92,739 895,454 988,193 297,222 1,285,415
8.1 Impairment of mineral interests, plant and equipment
December 31, 2009 Impairment Future Net
and income tax impairment
closure adjustment
costs
$`000 $`000 $`000
United States 789 268 521
exploration projects
Corporate and other 136 - 136
Mineral interests, 925 268 657
plant and equipment
Dominion Project (note 246,525 - 246,525
3.3)
Assets held for sale 246,525 - 246,525
Texas assets (note 3.4) 14,767 (5,422) 20,189
Other assets (note 3.4) 3,239 1,070 2,169
Disposals during the 18,006 (4,352) 22,358
year
Total 265,456 (4,084) 269,540
December 31, 2008 Impairment Future Net
and income tax impairment
closure adjustment
costs
$`000 $`000 $`000
Dominion Project 1,805,452 474,735 1,330,717
United States 204,289 68,679 135,610
development projects
United States 936,556 331,619 604,937
exploration projects
Hobson Facility and La 83,409 19,024 64,385
Palangana Project
United States 65,310 4,070 61,240
conventional mining
projects
Honeymoon Project 195,358 59,196 136,162
Corporate and other 31,848 5,701 26,147
assets
3,322,222 963,024 2,359,198
9 OTHER ASSETS
Dec 31, Dec 31,
2009 2008
$`000 $`000
Current
Purchased uranium concentrates - 9,743
Borrowed uranium concentrates 8,900 -
Future income tax assets 1,070 1,206
Deposit for acquisition of 8,750 -
Christensen Ranch and Irigaray (note
3.2)
Deferred business development 5,174 -
expenditure
Other 578 1,094
24,472 12,043
Non-current
Asset retirement fund 13,500 19,939
Advances for future services - 10,054
Borrowed uranium concentrates - 8,621
Advances for investment in sulphuric - 5,959
acid plant
Advances for plant and equipment 7,487 3,938
Long term deposits and guarantees 347 2,489
Long term inventory 1,244 -
Available for sale securities 9,287 593
Deferred business development - 503
expenditure
Discontinued operations - 9,024
Other 1,272 1,856
33,137 62,976
Uranium concentrates loans
The Corporation entered into a uranium concentrates borrowing agreement to
mitigate the risk of delivery delays, enabling the Corporation to meet its
contractual obligations in terms of current uranium sales contracts. The
asset represents the borrowed uranium concentrates, which are held at a
conversion facility in the Corporation`s account. The asset is recorded at
its fair value. The corresponding financial liability of $8.9 million,
which was classified as held for trading, is also carried at fair value and
is included in uranium concentrates loans in current liabilities (note 15).
Discontinued operations
The Corporation disposed of its remaining shareholding in Gold One during
the year ended December 31, 2009, realizing a gain of $2.0 million from the
sale of 186.8 million shares for proceeds of $24.3 million, of which $3.1
million was received in 2008.
Available for sale securities
During the year the Corporation received 2.5 million UEC shares for the
sale of the Texas properties. The fair value of the UEC shares were $8.7
million as at December 31, 2009 (note 3.4). The Corporation holds further
available for sale securities with a fair value of $0.6 million.
10 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Dec 31, Dec 31,
2009 2008
$`000 $`000
Trade payables 22,325 18,222
Accruals 18,661 19,874
Advances received 19,938 -
Commodity and other taxes payable 4,378 4,148
Deposit received for sale of Gold - 3,100
One shares
Other 606 2,079
65,908 47,423
11 LONG TERM DEBT
Dec 31, Dec 31,
2009 2008
$`000 $`000
Opening balance 61,275 -
Drawn down during the year - 65,000
Financing fees - (3,876)
Amortized financing fees 2,371 -
Interest paid (1,210) (386)
Interest accrued 1,143 537
Closing balance 63,579 61,275
Current portion 63,579 -
Long term portion - 61,275
63,579 61,275
On June 27, 2008, the Corporation established a $100 million bank debt
senior secured revolving credit facility (the "facility"). Under the terms
of the facility, the Corporation had the ability to borrow up to $100
million from the lead lenders, Bank of Montreal and The Bank of Nova Scotia
(the "Banks"). The facility has a two year term, and may be extended for a
further year with lender consent.
Draw downs under the facility can be made at interest rates based on either
the US dollar LIBOR rate or the Bank of Montreal base rate for US dollar
denominated loans. Undrawn amounts are subject to a commitment fee
currently at 0.50% per annum. Letters of credit can be issued under the
facility at a fee of between 1.25% and 2.00% per annum.
The Corporation has made a drawdown of $65 million under the credit
facility on October 20, 2008. The loan currently bears interest at 2.2%
per year. Letters of credit in the amount of $9.1 million were issued
under the credit facility as at December 31, 2009.
The debt is payable with no notice, anytime before June 27, 2010.
The margins over the base interest rates, the commitment fee and the letter
of credit fee, are dependent on the ratio of the Corporation`s net debt
(consisting of total debt less certain cash balances) to its earnings
before interest, taxes, stock based compensation, depreciation and
depletion and other non-cash items.
Draw downs under the facility may be used for general corporate purposes,
including working capital requirements and funding capital expenditures and
acquisitions.
Financing fees relate to upfront costs and other costs incurred associated
with establishing the credit facility, and are expensed over the term of
the facility.
12 CONVERTIBLE DEBENTURES
The Corporation has outstanding convertible unsecured subordinated
debentures maturing December 31, 2011 (the "debentures") with a face value
of Cdn $155.3 million ($147.9 million). The debentures were originally
issued at Cdn $1,000 per debenture and bear interest at an annual rate of
4.25%, payable semi-annually in arrears on June 30 and December 31 of each
year. The conversion price is Cdn $20 per share, which is equivalent to 50
common shares for each Cdn $1,000 principal amount of debentures.
The table below indicates the breakdown of the liability:
Dec 31, Dec 31,
2009 2008
$`000 $`000
Opening balance 118,042 136,548
Interest incurred 8,739 15,075
Coupon payment (6,049) (5,989)
Foreign exchange movement 20,130 (27,592)
Liability as at the end of the year 140,862 118,042
13 ASSET RETIREMENT OBLIGATIONS
Dec 31, Dec 31,
2009 2008
$`000 $`000
Opening balance 12,999 13,927
Revision of estimates - (68)
Accretion expense 1,291 1,407
Settled (959) -
Incurred 6,555 -
Sale of 49% interest in Honeymoon - (307)
Karatau business combination 2,841 -
Reallocated to assets held for sale (7,211) -
Other - (727)
Foreign exchange movement 584 (1,233)
Closing balance 16,100 12,999
Dec 31, Dec 31,
2009 2008
Undiscounted and uninflated amount of 23,801 24,864
estimated cash flows ($`000)
Payable in years 8 - 44 7 - 45
Inflation rate 2.69% - 2.69% -
7.00% 8.50%
Discount rate 8.40% - 8.50% -
12.52% 15.90%
Security of $13.5 million (2008: $19.9 million) for reclamation obligations
has been provided in the form required by the relevant country`s
authorities (note 9).
14 INCOME TAXES
Dec 31, Dec 31,
2009 2008
$`000 $`000
Current income tax expense 20,915 44,191
Future income tax recovery (206,379) (1,013,634)
(185,464) (969,443)
Reconciliation between the average effective tax rate and the applicable
statutory tax rate.
Dec 31, Dec 31,
2009 2008
$`000 $`000
Loss before income taxes (223,542) (3,303,030)
Canadian federal and provincial 30.00% 31.00%
income tax rates
Expected income tax recovery (67,063) (1,023,939)
Permanent differences, including (9,606) 6,075
share based compensation and foreign
exchange
Effect of tax rate changes (202,201) 1,150
Change in valuation allowance 92,798 143,661
Differences in tax rates in foreign (478) (101,439)
jurisdictions
Other 1,086 5,049
(185,464) (969,443)
Future income tax
The significant components of the Corporation`s future income tax assets
and liabilities are as follows:
Dec 31, Dec 31,
2009 2008
$`000 $`000
Future income tax assets
Mineral interests, plant & equipment 137,003 151,815
Other 85,642 12,105
Non-capital losses 90,090 69,080
Future income tax assets before 312,735 233,000
valuation allowance
Valuation allowance (256,403) (163,827)
Future income tax assets, net of 56,332 69,173
valuation allowance
Future income tax liabilities
Mineral interests, plant & equipment 235,949 435,096
Other - 8,164
Future income tax liabilities 235,949 443,260
Net current portion of future income 1,070 1,206
tax assets
Net long term portion of future income (180,687) (375,293)
tax liabilities
Net future income tax liability (179,617) (374,087)
14 INCOME TAXES (continued)
Tax loss carry-forwards
Canada and provincial tax jurisdictions
At December 31, 2009, the Corporation had Canadian federal and provincial
net operating loss carry-forwards totaling $94.5 million with a tax value
of $24.6 million that expire from 2010 through 2030. A valuation allowance
of $24.6 million has been applied against the future tax asset representing
these losses.
United States federal and state tax jurisdictions
At December 31, 2009, the Corporation had United States federal and state
net operating loss carry-forwards totaling $65.3 million with a tax value
of $23.6 million that expire from 2020 through 2030. A valuation allowance
of $nil million has been applied against the future tax asset representing
these losses.
South Africa tax jurisdictions
At December 31, 2009, the Corporation had South Africa net operating loss
carry-forwards totaling $95.1 million with a tax value of $33.3 million
with no expiry. A valuation allowance of $33.3 million has been applied
against future tax asset representing these losses.
Kazakhstan tax jurisdictions
At December 31, 2009, the Corporation had Kazakhstan net operating loss
carry-forwards totaling $21.2 million with a tax value of $3.2 million that
expire from 2010 through 2012. A valuation allowance of $3.2 million has
been applied against the future tax asset representing these losses.
Australia tax jurisdictions
At December 31, 2009, the Corporation had Australian net operating loss
carry-forwards totaling $18.3 million with a tax value of $5.5 million with
no expiry. A valuation allowance of $nil has been applied against the
future tax asset representing these losses.
15 OTHER LIABILITIES
Dec 31, Dec 31,
2009 2008
$`000 $`000
Current -
Promissory note (note 3.1) 90,211 -
Contingent payment (note 3.1) 20,000 -
Unfavorable contracts 11,655 -
Uranium concentrates loan 8,900 -
Short term loan (note 3.1) 5,000 -
Other 1,277 -
137,043 -
Non-current
Uranium concentrates loan - 10,692
Kyzylkum external loan facility 47,574 35,453
(note 6)
Due to the Republic of Kazakhstan 1,696 2,138
Other 181 641
49,451 48,924
Uranium concentrates loan
On September 22, 2008, the Corporation entered into a loan agreement to
borrow 200,000 pounds of U3O8 to be repaid on September 30, 2010. Under
the loan agreement, loan fees of 3.5% per annum are payable based on the
value of the borrowed U3O8. The Corporation recognized the borrowed
uranium as an Other asset (note 9). The loan which was classified as a
financial liability held for trading, and the other asset are carried at
fair value.
Unfavourable contract
The Corporation acquired an unfavorable contract as part of the Karatau
acquisition which is carried at fair value (note 3.1). The fair value will
be realized as part of revenue when the finished uranium concentrates are
delivered into the contract.
Promissory note
The Corporation issued a $90 million promissory note as part of the
consideration for the purchase of Karatau (note 3.1). The promissory note
was due not later than 12 months from closing and was repaid on January 18,
2010.
16 SHARE CAPITAL
Number of Value of
Issued and outstanding common shares shares shares
$`000
Common shares on January 1, 2008 467,173,4 3,496,884
23
Exercise of warrants 1,190,000 15,791
Exercise of stock options 1,043,016 7,358
Exercise of restricted shares 206,517 2,791
Common shares on December 31, 2008 469,612,9 3,522,824
56
Exercise of warrants
Exercise of stock options 600,184 6,599
Exercise of restricted shares 44,836 257
Contingent shares issued 165,600 388
Karatau acquisition share issued 117,000,0 293,229
00
Issued and outstanding common shares 587,423,5 3,823,297
at December 31, 2009 76
17 CONTRIBUTED SURPLUS
The following table details the movement of contributed surplus during the
year:
Restric
ted
Warrants shares Options Total
$`000 $`000 $`000 $`000
As at January 1, 25,372 3,119 105,896 134,387
2008
Stock options - - 14,145 14,145
issued and vested
Stock options - - (3,957) (3,957)
exercised
Restricted shares - 1,278 - 1,278
vested
Restricted shares - (2,791) - (2,791)
exercised
Warrants exercised (11,460) - - (11,460)
As at December 31, 13,912 1,606 116,084 131,602
2008
Stock options - - 7,027 7,027
issued and vested
Stock options - - (5,369) (5,369)
exercised
Restricted shares - 475 - 475
issued and vested
Restricted shares - (257) - (257)
exercised
As at December 31, 13,912 1,824 117,742 133,478
2009
Assumptions
The fair value of stock options and restricted shares used to calculate the
compensation expense was estimated using the Black-Scholes option pricing
model with the following assumptions:
December December
31, 2009 31, 2008
Risk free interest rate 1.7% - 2.52% -
2.82% 3.60%
Expected dividend yield 0% 0%
Expected volatility of the Uranium 98% - 115% 66% - 120%
One`s share price
Expected life 5 years 5 years
Warrants
The Corporation has no outstanding warrants at December 31, 2009 (2008:
nil).
17 CONTRIBUTED SURPLUS (continued)
Stock options
The following is a summary of options granted under the stock-based
compensation plan:
Weighted
Number of average
options exercise
price
Cdn $
Outstanding options as at January 20,824,788 8.55
1, 2008
Granted options 2,559,948 3.56
Exercised options (1,043,016) 3.74
Forfeitures of stock options (6,483,203) 9.12
Outstanding options as at December 15,858,517 7.82
31, 2008
Granted options 6,292,351 2.23
Exercised options (600,184) 2.25
Forfeitures of stock options (2,986,524) 6.89
Outstanding options as at December 18,564,160 6.26
31, 2009
The stock option compensation expense for the year ended December 31, 2009
was $7.0 million and for the year ended December 31, 2008 it was $14.1
million. As at December 31, 2009, the aggregate unexpensed fair value of
unvested stock options granted amounted to $5.0 million. The fair value of
options granted during the year amounts to $8.2 million ($1.31 per option)
(2008: $5.5 million, $2.15 per option).
The following table summarizes stock options outstanding at December 31,
2009:
Options outstanding Options exercisable
Range of Number Weighted Weight Number Weighted Weighted
exercise outstandin average ed exercisab average average
prices g as at remaining averag le as at remainin exercise
December life e December g life price
31, exerci 31,
2009 se 2009
price
Cdn $ (years) Cdn $ (years) Cdn $
0.78 to 6,068,700 3.98 2.18 254,814 1.30 1.49
2.74
2.75 to 3,821,199 3.00 3.86 2,701,192 2.98 3.93
4.76
4.77 to 2,161,319 2.44 6.96 2,097,715 2.41 7.02
7.79
7.80 to 3,065,950 5.63 8.44 3,047,036 5.65 8.44
9.90
9.91 to 1,827,175 2.60 12.13 1,787,510 2.60 12.13
12.93
12.94 to 613,900 2.17 13.90 555,780 2.14 13.94
15.63
15.64 to 1,005,917 2.18 16.52 707,927 2.19 16.48
16.59
18,564,160 3.58 6.26 11,151,97 3.41 8.30
4
17 CONTRIBUTED SURPLUS (continued)
Restricted share rights
The following is a summary of Uranium One`s restricted shares issued under
the Restricted Share Plan:
Number of
restricted
shares
Balance at January 1, 2008 295,532
Granted 609,000
Exercised during the year (206,517)
Expired (74,520)
Balance at December 31, 2008 623,495
Exercised during the year (44,836)
Expired (127,500)
Balance at December 31, 2009 451,159
The following is a summary of the outstanding restricted share rights:
Number of restricted
shares
Dec 31, Dec 31,
2009 2008
Grant date
June 7, 2006 72,083 72,083
December 8, 2006 4,576 9,245
July 1, 2007 - 6,667
April 7, 2008 374,500 510,500
April 28, 2008 - 25,000
Balance at the end of the year 451,159 623,495
Restricted share rights will not expire while the rights holder is an
employee of the Corporation.
The restricted share rights expense for the year ended December 31, 2009
was $0.5 million and for the year ended December 31, 2008 was $1.3 million.
As at December 31, 2009 the aggregate unexpensed fair value of unvested
restricted share rights granted amounted to $0.6 million (2008: $1.6
million). No restricted shares were granted during the year. The fair
value of the restricted shares granted during 2008 was $2.4 million.
Contingently issuable shares
Under the terms of the acquisition agreement for the Kyzylkum JV interest,
Uranium One is obligated to issue 6,964,200 common shares of Uranium One
upon commencement of commercial production from Kyzylkum.
The Corporation assumed all of the obligations of Uranium One Americas,
Inc. (previously Energy Metals Corporation Inc.) and its subsidiaries
arising under certain option and joint venture agreements with third
parties. At December 31, 2009 Uranium One has reserved a total of 57,500
common shares for issuance pursuant to the assumed obligations under
contingent share rights agreements. 165,600 contingent shares were issued
during the year due to the performance conditions being met. 184,000
contingent share rights have lapsed during the year.
18 INTEREST AND OTHER
Year ended
Dec 31, Dec 31,
2009 2008
$`000 $`000
Interest income 4,885 10,315
Interest paid (1,155) (505)
Convertible debenture interest (note (8,739) (15,075)
12)
Credit facility charges (3,720) (1,677)
Interest and costs incurred on (351) (224)
uranium concentrates loan
Costs incurred in relation to letters (65) (210)
of credit
(9,145) (7,376)
19 FOREIGN EXCHANGE LOSS
A summary of the foreign exchange loss by item is as follows:
Year ended
Dec 31, Dec 31,
2009 2008
$`000 $`000
Unrealized foreign exchange gain on 63,771 1,340
future income tax liabilities
Unrealized foreign exchange loss on (7,821) (2,679)
other items
Realized foreign exchange gain / 3,077 (10,370)
(loss) on other items
59,027 (11,709)
The National bank of Kazakhstan announced on February 4, 2009 that it has
ceased to maintain the Kazakhstan tenge ("tenge") within the previous range
of 117-123 tenge to the US dollar and suggested the rate be set within a
range of 145-155 tenge to the US dollar. The tenge closed at 148.36 tenge
to the US dollar on December 31, 2009. The resulting devaluation affected
the translated values of monetary assets and liabilities, resulting in a
$63.8 million gain on future income tax liabilities.
20 CASH FLOW INFORMATION
Year ended
Dec 31, Dec 31,
2009 2008
$`000 $`000
Changes in non-cash working capital
excluding business combinations:
Decrease accounts and other 6,613 28,818
receivables
Decrease in prepaid expenses and 10,379 2,651
other
Increase in inventories (9,486) (910)
Decrease in accounts payable and (7,949) (6,279)
accrued liabilities
(Decrease) / increase in income taxes (9,215) 8,450
payable
(9,658) 32,730
Supplemental cash flow information
Cash interest paid 8,399 7,288
Cash tax paid 30,310 35,740
21 BASIC AND DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
Year ended
Dec 31, Dec 31,
2009 2008
Basic weighted-average number of 475,583 468,424
shares outstanding (`000)
Effect of dilutive securities:
-stock options - -
-warrants - -
Diluted weighted-average number of 475,583 468,424
shares outstanding
For the years ended December 31, 2009 and 2008, convertible debentures,
stock options, warrants and restricted shares were not included in the
dilutive weighted average number of shares outstanding as they were anti-
dilutive.
22 CAPITAL DISCLOSURES
The Corporation`s objectives when managing capital are to:
(i) Maintain a flexible capital structure which optimizes the cost of
capital at acceptable risk;
(ii) Continue the development and exploration of its mineral properties;
and
(iii)Support any expansion plans.
In the management of capital, the Corporation includes shareholders`
equity, long term debt, cash, convertible debentures and the current
portion of loans to joint ventures.
The Corporation manages its capital structure and makes adjustments to it
when the economic and risk conditions of the underlying assets require
change. In order to maintain or adjust the capital structure, the
Corporation may issue new shares, issue new debt, and/or issue new debt to
replace existing debt with different characteristics. The Corporation has
in place a planning and budgeting process to help determine the funds
required to ensure the Corporation has the appropriate liquidity to meet
its operating and growth objectives.
The Corporation monitors the following ratios in this respect: total debt
to total capitalization and net debt to total capitalization.
The Corporation must maintain an interest coverage ratio of greater than
2.5 to meet the credit facility`s debt covenants. The interest coverage
ratio is calculated as the ratio of the Corporation`s earnings before
interest, taxes, share based compensation, depreciation and depletion and
other non-cash items ("EBITDA") to interest paid.
For years ended
Dec 31, Dec 31,
2009 2008
$`000 $`000
Total liabilities (excluding future 487,520 301,302
income tax liabilities)
Net liabilities (total liabilities less
cash, receivables, and current portion
of loans
to joint ventures) 296,650 65,993
Total capitalization (total 1,480,900 950,538
shareholders` equity)
Total liabilities as a percentage of 33% 32%
shareholders` equity
Net liabilities as a percentage of 20% 7%
shareholders` equity
Credit facility:
EBITDA (rolling 4 quarters) 49,550 69,755
Interest coverage ratio 7.1 10.5
23 FINANCIAL INSTRUMENTS
Convertible debentures Dec 31, Dec 31,
2009 2008
$`000 $`000
Liability component 140,862 118,042
Equity component 46,480 46,480
187,342 164,522
Fair value of convertible debentures 131,668 86,222
The Corporation`s activities expose it to a variety of financial risks,
including the effects of changes in debt and prices of equity instruments
held, foreign currency exchange rates, interest rates, and commodity
prices.
The Corporation continuously monitors its exposure to risk. The risk
management carried out by the Corporation is approved by the Board of
Directors. The following section describes the type of significant risks
that the Corporation is exposed to and its objectives and policies for
managing those risk exposures.
(i) Designation and valuation of financial instruments
The following table summarizes the designation and fair value hierarchy
under which the Corporation`s financial instruments are valued, other than
trade and other receivables and payables.
- Level 1 of the fair value hierarchy includes unadjusted quoted prices
in active markets for identical assets or liabilities;
- Level 2 of the hierarchy includes inputs that are observable for the
asset or liability, either directly or indirectly; and
- Level 3 includes inputs for the asset or liability that are not based
on observable market data. The Corporation does not have any financial
instruments included in Level 3.
As at December 31, 2009
Loans and Available Total
receivables for sale
securities
Designation of Notes $`000 $`000 $`000
financial assets
Cash and cash 4 148,465 - 148,465
equivalents
Shares - 9 - 9,287 9,287
available for
sale
Total 148,465 9,287 157,752
As at December 31, 2009
Held at Financial
fair liabilities
value at Total
through amortized
profit cost
and
loss
Designation of Notes $`000 $`000 $`000
financial
liabilities
Long term debt 11 - 63,579 63,579
Kyzylkum external 15 - 47,574 47,574
loan facility
Convertible 12 - 140,862 140,862
debenture
Uranium concentrates 15 8,900 - 8,900
loan
Promissory note 15 - 90,211 90,211
Contingent payment 15 - 20,000 20,000
Unfavorable 15 - 11,655 11,655
contracts
Short term loan 15 - 5,000 5,000
Due to the Republic 15 - 1,696 1,696
of Kazakhstan
Other 15 - 1,458 1,458
Total 8,900 382,035 390,935
As at December 31, 2009
Fair value hierarchy of Total Level 1 Level 2 Level 3
financial assets and
liabilities measured at
fair value
$`000 $`000 $`000 $`000
Available for sale 8,740 - 8,740 -
securities - UEC shares
Available for sale 547 547 - -
securities - other
Uranium concentrates (8,900) - (8,900) -
loan
Total 387 547 (160) -
23 FINANCIAL INSTRUMENTS (continued)
(ii) Foreign exchange risk
The Foreign exchange risk relates to the risk that the value of financial
commitments, recognized assets or liabilities will fluctuate due to changes
in foreign currency rates.
The Corporation is primarily exposed to foreign currency risk through the
following assets and liabilities denominated in currencies other than US
dollars:
Financial assets and liabilities Non-financial
assets
and
liabilities
Cash Account Account Conver Minera Future
and s s tible l income
cash receiva payable debent intere tax
equiva ble and ures sts liabil
lents accrued plant ities
liabili and
ties equipm
ent
(1)
Decembe
r 31,
2009
$`000 $`000 $`000 $`000 $`000 $`000
Canadia 170 2,539 6,186 140,86 - -
n 2
dollar
Austral 22,071 1,571 4,369 - 78,039 4,074
ian
dollar
Kazakhs 3,496 28,981 37,761 - - 142,70
tan 4
tenge
Euro 41 - 9 - - -
South 674 - - - - -
African
Rand
26,452 33,091 48,325 140,86 78,039 146,77
2 8
Financial assets and liabilities Non-financial
assets and
liabilities
Decembe Cash Account Accoun Conver Minera Future
r 31, and s ts tible l income
2008 cash receiva payabl debent intere tax
equival ble e and ures st liabil
ents accrue plant ities
d and
liabil equipm
ities ent
$`000 (1)
$`000 $`000 $`000 $`000 $`000
Canadia 438 2,436 3,477 118,04 - -
n 2
dollar
Austral 44,597 1,212 7,558 - 38,619 3,271
ian
dollar
Kazakhs 1,251 5,978 11,515 - - 342,43
tan 0
tenge
South 5,227 4,821 17,506 - 44,586 -
African
rand
51,513 14,447 40,056 118,04 83,205 345,70
2 1
(1) Only includes mineral interests, plant and equipment of self-
sustaining operations.
The following table shows the effect on earnings and other comprehensive
income after tax as at December 31, 2009 of a 10% appreciation or
depreciation in the foreign currencies against the US dollar on the above-
mentioned financial and non-financial assets and liabilities of the
Corporation.
Other
comprehensive Net
income Earnings
A 10% appreciation in all foreign (3,295) 18,057
currencies against the US dollar,
with all other variables held
constant.
A 10% depreciation in exchange rates would have the exact opposite effect
on other comprehensive income and net earnings.
(iii) Credit risk
Credit risk is primarily associated with trade receivables, and to a lesser
extent, cash equivalents.
The Corporation closely monitors its financial assets and does not have any
significant concentration of credit risk. The Corporation sells its
products exclusively to organizations with strong credit ratings. Cash and
cash equivalents are held through large international financial
institutions. Cash and cash equivalents are comprised of financial
instruments issued by Canadian banks and companies with high investment-
grade ratings. These investments mature at various dates.
23 FINANCIAL INSTRUMENTS (continued)
The Corporation`s maximum exposure to credit risk at the balance sheet date
is as follows:
Dec 31, Dec 31,
2009 2008
$`000 $`000
Cash, cash equivalents and restricted 148,465 176,225
cash
Accounts receivable 42,405 39,926
Available for sale securities 9,287 593
200,157 216,744
(iv) Liquidity risk
The Corporation has a cash forecast and budgeting process in place to
assist with the determination of funds required to support the
Corporation`s operating requirements on an ongoing basis and its expansion
plans. The Corporation manages liquidity risk through the management of
its capital structure and financial leverage as outlined in note 22.
The Corporation has established a credit facility (note 11) as part of its
liquidity risk management process. The Corporation has made its first draw
down against the facility in the amount of $65 million on October 20, 2008.
The following table summarizes the contractual maturities of the
Corporation`s significant financial liabilities and capital commitments,
including contractual obligations:
Less 1 to 3 4 to 5 After 5
than
1 year years years years Total
Lease 793 906 804 1,571 4,074
obligations
Kyzylkum long 6,720 30,720 10,560 - 48,000
term debt
Capital 15,538 1,548 221 - 17,307
commitments
Asset 508 6 3,038 14,562 18,114
retirement
obligations
Accounts 65,908 - - - 65,908
payable and
accrued
liabilities
Credit 65,000 - - - 65,000
facility
repayments
Short term 5,000 - - - 5,000
loan
Uranium 8,900 - - - 8,900
concentrates
loan (note
15)
Convertible - 147,894 - - 147,894
debentures
Other 305 596 596 1,065 2,562
168,672 181,670 15,219 17,198 382,759
The convertible debenture is redeemable in cash or shares, and may not
result in a cash outflow. The uranium concentrates loan requires settlement
with uranium concentrates, and may not result in a cash outflow.
The Corporation has interests in joint ventures, and is responsible for
partial funding of these joint ventures pursuant to the terms of the joint
venture agreements. The Corporation does not bear direct liquidity risk for
liquidity of these joint ventures, except for the risk relating to the
repayment to loans made to the joint ventures. The Corporation can only
utilize cash generated by the joint ventures when the joint ventures pay
dividends.
On January 19, 2009, in connection with the construction of a sulphuric
acid plant by SKZ-U, in which the Corporation subsequently acquired a 19%
joint venture interest, the Corporation provided a guarantee to a third
party in respect of 19% of the construction cost of the plant, limited to a
maximum amount of $7.6 million (Euro 5.5 million).
The Corporation is exposed to liquidity risk from fluctuating commodity
prices when the 200,000 pounds of uranium concentrates received as part of
a uranium loan transaction are utilized against contracts. As the market
value of the liability to deliver the uranium concentrates fluctuates based
on commodity prices, so will the market value of the uranium concentrates
held by the Corporation. The effect that market fluctuations in the uranium
price have on the asset and liability will offset, except in circumstances
where the borrowed uranium has been utilized to make a delivery into a
contract. In these circumstances, the Corporation will recognize a net fair
market value adjustment.
23 FINANCIAL INSTRUMENTS (continued)
A 10% change in commodity prices, should the Corporation be exposed, would
impact the Corporation`s liquidity risk due to the uranium concentrates
loan (note 15), as follows:
Dec 31, Dec 31,
2009 2008
$`000 $`000
A 10% appreciation in commodity
prices, with all other variables held
constant:
- current - 198
- maximum exposure 890 1,060
A 10% depreciation in the commodity price would have the exact opposite
effect on net earnings.
(v) Interest rate risk
The Corporation is exposed to interest rate risk on its outstanding
borrowings and short-term investments. The only outstanding interest-
bearing borrowings as at December 31, 2009 are the loan facility obtained
by Kyzylkum (note 6.1) which bears interest at floating rates, the drawn-
down amount on the credit facility which bears interest at floating rates
(note 11), and the convertible debentures, with a fixed interest rate.
A 100 basis point change in the interest rate would impact the
Corporation`s net earnings as follows:
Dec 31, Dec 31,
2009 2008
$`000 $`000
A 100 basis point appreciation in
interest rates, with all other
variables
held constant 1,659 811
A 100 basis point depreciation in the interest rate would have the exact
opposite effect on net earnings.
(vi) Commodity price risk
The Corporation is exposed to price risk with respect to commodity prices.
The Corporation does not hedge its exposure to price risk, other than
having market related pricing structures in the long-term sales contracts,
which the Corporation has entered into. Increases in uranium prices would
have a positive impact on profitability given that the majority of the
Corporation`s sales contracts are priced based on market values for
uranium.
The Corporation is exposed to price risk from fluctuating commodity prices
with respect to outstanding uranium concentrates loans if the borrowed
uranium has been utilized to make a delivery. As the market value of the
liability to deliver the uranium concentrates fluctuates, based on
commodity prices, so will the market value of the uranium concentrates
borrowed by the Corporation. The effect that market fluctuations in the
uranium price have on the borrowed uranium asset and uranium concentrates
liability will offset, except in circumstances where the borrowed uranium
has been utilized to make a delivery into a contract. In these
circumstances, the Corporation will recognize a net fair market value
adjustment in the statement of operations.
24 SEGMENTED INFORMATION
The Corporation`s reportable operating segments are summarized in the table
below:
For the year ended December 31, 2009: (in $`000)
Country Revenues Operating Depreciat
expenses ion and
depletion
$`000 $`000 $`000
Akdala Mine Kazakhstan 74,085 (19,113) (16,699)
South Inkai Mine Kazakhstan 67,197 (28,778) (22,131)
Karatau Mine Kazakhstan 10,710 (3,130) (7,553)
Kharasan Project Kazakhstan - - -
United States United States - - -
development
projects
United States United States - - -
exploration
projects
United States United States - - -
conventional
mining projects
Honeymoon Australia - - -
Project
Corporate and - - -
other
Total 151,992 (51,021) (46,383)
Table Continues:...
Exploration Net earnings/ Capital
expense (loss) from expenditure
continuing
operations
$`000 $`000 $`000
Akdala Mine - 47,228 2,345
South Inkai Mine - 183,440 17,165
Karatau Mine - (1,663) -
Kharasan Project - 55,960 10,745
United States - (8,651) 11,780
development
projects
United States (6,749) (23,205) -
exploration
projects
United States - (923) 84
conventional
mining projects
Honeymoon (880) (798) 25,447
Project
Corporate and (1,201) (289,466) 642
other
Total (8,830) (38,078) 68,208
For the year ended December 31, 2008: (in $`000)
Country Revenues Operating Depreciation
expenses and
depletion
$`000 $`000 $`000
Akdala Mine Kazakhstan 149,776 (30,490) (22,566)
South Inkai Kazakhstan - - -
Project
Kharasan Kazakhstan - - -
Project
Dominion South Africa - - -
Project
United States United States - - -
development
projects
United States United States - - -
exploration
projects
Hobson United States - - -
Facility and
La Palangana
Project
United States United States - - -
conventional
mining
projects
Honeymoon Australia - - -
Project
Corporate and - - -
other
Total 149,776 (30,490) (22,566)
Table Continues:...
Exploration Net earnings/ Capital
expense (loss) from expenditure
continuing
operations
$`000 $`000 $`000
Akdala Mine - 61,902 10,651
South Inkai - 26 43,139
Project
Kharasan - 875 19,466
Project
Dominion (1,412) (1,325,938) 94,211
Project
United States - (135,666) 11,455
development
projects
United States (6,979) (536,905) 1,013
exploration
projects
Hobson (690) (65,077) 17,056
Facility and
La Palangana
Project
United States (1,189) (85,104) 3,854
conventional
mining
projects
Honeymoon (2,339) (139,236) 13,525
Project
Corporate and (2,272) (108,464) 2,387
other
Total (14,881) (2,333,587) 216,757
24 SEGMENTED INFORMATION (continued)
As at December 31, 2009: (in $`000)
Mineral Future
interest
plant Total income Total
and tax
Country equipmen assets liabili liabili
t ties ties
$`000 $`000 $`000 $`000
Akdala Mine Kazakhs 179,706 214,121 18,231 24,004
tan
South Inkai Mine Kazakhs 478,419 522,574 37,613 49,017
tan
Karatau Mine Kazakhs 510,494 531,508 74,637 141,192
tan
Kharasan Project Kazakhs 208,830 217,800 12,223 66,433
tan
United States United 121,526 122,040 - 154
development States
projects
United States United 115,398 116,148 28,711 28,742
exploration States
projects
United States United 39,910 47,324 5,198 8,226
conventional States
mining projects
Honeymoon Project Austral 78,039 85,380 4,074 7,389
ia
Corporate and 15,962 240,752 - 330,106
other
Total (1) 1,748,28 2,097,6 180,687 655,263
4 47
Excludes assets held for sale
As at December 31, 2008: (in $`000)
Mineral Future
interest
plant and Total income tax Total
Country equipment assets liabilities liabilities
$`000 $`000 $`000 $`000
Akdala Mine Kazakhstan 195,719 200,497 66,156 81,385
South Inkai Kazakhstan 503,980 506,648 204,255 212,082
Project
Kharasan Project Kazakhstan 193,018 197,561 72,019 111,230
Dominion Project South 44,586 69,253 - 28,629
Africa
United States United 105,844 107,538 - 724
development States
projects
United States United 122,586 123,532 24,182 24,418
exploration States
projects
Hobson Facility United 22,026 24,064 - 1,506
and La Palangana States
Project
United States United 40,712 55,098 5,410 8,282
conventional States
mining projects
Honeymoon Project Australia 38,619 38,858 3,271 4,158
Corporate and 18,325 295,060 - 204,181
other
Total (1) 1,285,415 1,618,109 375,293 676,595
Excludes assets held for sale and discontinued operations
25 CONTINGENT SALE OF AN INTEREST IN THE DOMINION PROJECT
On June 7, 2005, Uranium One Africa and Micawber 397 (Proprietary) Limited
("Micawber 397"), a company owned by historically disadvantaged South
Africans, entered into a definitive purchase and sale agreement, a
management and skills transfer agreement and a joint venture agreement.
Pursuant to these agreements, Uranium One Africa agreed to sell to Micawber
397 an undivided 26% interest in the Dominion Project for cash
consideration equal to 26% of the net present value of the Dominion assets
at the date when Micawber elects to pay at least 20% of the purchase price.
This election must occur within three years after receipt of Micawber 397
of their first profit distribution from the joint venture. After the first
payment, Micawber is obliged to pay at least 20% of the purchase price
during each subsequent three-year period, so that the purchase price is
paid in full within twelve years of the date of the first payment.
The parties agreed to contribute their interests in the assets, to a joint
venture, to be managed by Uranium One Africa, and to fund the development
and operation of those assets in accordance with their respective joint
venture interests. Uranium One agreed to lend to Micawber 397 the funds
required to contribute their share under the joint venture agreement. The
aggregate amount of that loan, plus accrued interest, is repayable from
Micawber 397`s share of joint venture profits.
Uranium One Africa`s shareholders approved the Micawber transaction in
September 2005, following which the South African Department of Minerals
and Energy granted a "new order" mining right to the Corporation for the
Dominion Project in October 2006. The Micawber 397 transaction will be
accounted for in Uranium One`s consolidated financial statements when the
risks and rewards of the transaction are deemed to have passed to Micawber
397. Management has determined that this event will occur on the day that
Micawber 397 elects to pay at least 20% of the purchase price, prompting
the determination of the purchase price. As at December 31, 2009, Micawber
397 has not paid any part of the purchase price.
26 CONTINGENCIES
Due to the size, complexity and nature of the Corporation`s operations,
various legal and tax matters arise in the ordinary course of business.
The Corporation accrues for such items when a liability is both probable
and the amount can be reasonably estimated. In the opinion of management,
these matters will not have a material effect on the consolidated financial
statements of the Corporation.
Betpak Dala acquisition
As part of the original acquisition of the interest in Betpak Dala on
November 7, 2005, it was agreed that the Corporation is liable for a bonus
payment payable in cash based on uranium reserves discovered on the South
Inkai property in excess of 66,000 tonnes. The payment is based on the
Corporation`s share of U3O8 in excess of 66,000 tonnes times the average
spot price of U3O8 times 6.25%. This payment is to be calculated at the
end of 2011 and each year thereafter, and paid 60 days after the end of the
year in which a payment is due. No payment was due at December 31, 2009
(December 31, 2008 - $Nil).
As security for the bonus payment, the Corporation has pledged its
participatory interest in Betpak Dala (including the shares of a
subsidiary) and its share of uranium products produced by Betpak Dala.
Kyzylkum acquisition
As part of the original acquisition of the interest in Kyzylkum on November
7, 2005, it was agreed that the Corporation is liable for a bonus payment,
which is due upon commencement of commercial production. The seller
initially had an option, exercisable until October 31, 2006, to elect to
receive this bonus payment as a cash payment of $24 million or receive
15,476,000 shares of UrAsia Energy. The seller elected under the terms of
the arrangement, to receive 15,476,000 shares of UrAsia Energy upon
commencement of commercial production. The 15,476,000-bonus payment shares
of UrAsia Energy have been converted to 6,964,200 Uranium One shares as
part of the UrAsia Energy acquisition. The fair value of the contingently
issuable shares was not been included as part of the purchase price for
Kyzylkum as commencement of commercial production could not be reasonably
determined.
An additional bonus payment of 30% of 12.5% (being an effective 3.75%) of
the weighted average spot price of U3O8 will be paid on incremental
reserves in excess of 55,000 tonnes of U3O8 discovered during each fiscal
year with payment beginning within 60 days of the end of the 2008 calendar
year. No payment was due at December 31, 2009 (December 31, 2008 - $Nil).
Karatau acquisition
Contingencies relating to the Karatau acquisition are described in note
3.1.
26 CONTINGENCIES (continued)
Uranium One Americas, Inc. (previously Energy Metals Corporation)
acquisition
Contingencies relates to the Uranium One Americas, Inc (previously Energy
Metals Corporation) are described in note 17.
27 SUBSEQUENT EVENTS
Issuance of convertible debenture to Japanese Consortium
On February 9, 2009, Uranium One entered into a subscription agreement with
Japan Uranium Management Inc. ("JUMI"), a corporation formed by The Tokyo
Electric Power Company Incorporated, Toshiba Corporation, and The Japan
Bank of International Cooperation (collectively the "Consortium") providing
for the private placement of an aggregate of 117,000,000 common shares of
Uranium One, for gross proceeds of approximately C$270 million.
On December 29, 2009 the Corporation and JUMI have executed documentation
revising the February 9, 2009 private placement to a debenture financing.
Under the revised terms, on January 14, 2010, the Corporation issued to
JUMI C$269,100,000 aggregate principal amount of 3% unsecured convertible
debentures maturing ten years from the date of issue. The debentures will
automatically convert into 117,000,000 Uranium One common shares on receipt
of required Kazakh regulatory approval, which is expected during 2010. If
such approval is not received, the holder may, on 12 months` notice, cause
the debentures to be redeemed at par plus accrued and unpaid interest. Such
redemption may not occur before the second anniversary of the closing in
January 2012.
Upon conversion of the debenture (and after giving effect to the shares to
be issued to ARMZ in connection with the Karatau Uranium Mine transaction),
JUMI will have a 16.6% equity stake in Uranium One. The agreement also
contains a standstill provision under which the Consortium has agreed,
subject to certain exceptions, not to acquire without Uranium One`s prior
approval more than 19.95% of Uranium One`s issued common shares.
C$250 million bought deal financing of convertible unsecured subordinated
debentures
The Corporation announced on February 18, 2010 that it has entered into an
agreement for a bought deal financing with a syndicate of underwriters for
C$250,000,000 aggregate principal amount of convertible unsecured
subordinated debentures (the "2010 Debentures") together with an over-
allotment option of up to C$37,500,000 exercisable at any time up to the
closing.
The 2010 Debentures have a March 13, 2015 maturity date, with interest
payable at a rate of 5.0% per annum, payable semi-annually from the date of
receipt of all necessary Kazakh approvals for the conversion of the 2010
Debentures, or at a rate of 7.5% per annum, payable semi-annually before
the receipt of the necessary Kazakh approvals. The 2010 Debentures will be
convertible into common shares of the Corporation after receipt of all
necessary Kazakh approvals, at a rate of 250 common shares per C$1,000
principle and will have a conversion price of C$4.00 per common share,
representing a premium of approximately 25.8% based on a reference price of
C$3.18, being the closing price on February 17, 2010.
The offering is scheduled to close on or about March 12, 2010, and is
subject to the satisfaction of customary closing conditions, including
approval of the Toronto Stock Exchange and the Securities regulatory
authorities.
Other
Other material transactions occurring subsequent to December 31, 2009 are
also described in notes 3.1 and 3.2.
Sponsor
Nedbank Capital
Date: 11/03/2010 10:04:02 Supplied by www.sharenet.co.za
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